<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 8, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
COMMISSION FILE NUMBER 0-21203
DIEDRICH COFFEE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 33-0086628
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
2144 MICHELSON DRIVE
IRVINE, CALIFORNIA 92612
(Address of Principal Executive Offices including Zip Code)
(949) 260-1600
(Registrant's Telephone Number including Area Code)
----------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
As of April 21, 2000, there were 12,616,871 shares of common stock of
the registrant outstanding.
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<PAGE> 2
DIEDRICH COFFEE, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Consolidated Balance Sheets............................... 3
Condensed Consolidated Statements of Operations..................... 4
Condensed Consolidated Statements of Cash Flows..................... 5
Notes to Condensed Consolidated Financial Statements................ 6
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................... 11
Item 3 Quantitative and Qualitative Disclosures About Market Risk.......... 16
PART II - OTHER INFORMATION
Item 1 Legal Proceedings................................................... 16
Item 5 Other Information................................................... 16
Item 6 Exhibits and Reports on Form 8-K.................................... 17
Signatures.......................................................... 21
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DIEDRICH COFFEE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 8, 2000 JUNE 30, 1999
------------- -------------
<S> <C> <C>
ASSETS (NOTE 4)
Current Assets:
Cash $ 4,068,678 $ 552,124
Accounts receivable 3,247,269 335,903
Note receivable 100,000 100,000
Inventories (Note 3) 4,712,965 1,432,249
Prepaid expenses 842,871 153,113
Income taxes receivable 16,233 17,686
------------ ------------
Total current assets 12,988,016 2,591,075
Property and equipment, net 16,566,839 7,504,439
Costs in excess of net assets acquired, net 31,331,974 317,741
Note receivable - long-term 40,000 40,000
Other assets 829,211 1,329,185
------------ ------------
Total assets $ 61,756,040 $ 11,782,440
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current installments of obligations under capital lease $ 247,541 $ 169,488
Current installments of long-term debt and note payable 2,666,664 1,000,000
Accounts payable 3,081,295 1,978,325
Accrued compensation 1,882,547 900,565
Accrued expenses 4,952,777 886,903
Reserve for disposal of stores (Note 2) 981,691 --
Reserve for store closings and restructuring costs 7,850 95,195
------------ ------------
Total current liabilities 13,820,365 5,030,476
Obligations under capital lease, excluding current installments 997,897 239,049
Long-term debt, excluding current installments (Note 4) 8,666,670 2,500,000
Deferred rent 436,942 233,548
------------ ------------
Total liabilities 23,921,874 8,003,073
------------ ------------
Stockholders' Equity: (Note 5)
Common stock 126,168 61,736
Additional paid-in capital 52,500,897 18,826,473
Accumulated deficit (14,792,899) (15,108,842)
------------ ------------
Total stockholders' equity 37,834,166 3,779,367
------------ ------------
Commitments and contingencies
Total liabilities and stockholders' equity $ 61,756,040 $ 11,782,440
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
DIEDRICH COFFEE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTY-NINE
TWELVE WEEKS THIRTEEN WEEKS THIRTY-SIX WEEKS WEEKS
ENDED MARCH 8, ENDED APRIL 28, ENDED MARCH 8, ENDED APRIL 28,
2000 1999 2000 1999
-------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Total Revenues:
Retail $ 11,235,027 $ 5,189,865 $ 32,669,874 $ 15,809,478
Wholesale and other 3,442,949 858,408 14,184,301 2,301,122
Franchise revenue 2,067,279 50,030 5,296,609 250,030
------------ ----------- ------------ ------------
Total 16,745,255 6,098,303 52,150,784 18,360,630
------------ ----------- ------------ ------------
Cost and Expenses:
Cost of sales and related occupancy
costs 7,890,189 2,758,104 25,487,273 8,318,233
Store operating expenses 5,349,488 2,288,028 15,971,265 6,666,764
Other operating expenses 374,724 157,508 1,048,985 496,331
Depreciation and amortization 901,014 506,935 2,540,090 1,504,381
General and administrative expenses 1,918,989 857,267 6,067,928 2,782,698
------------ ----------- ------------ ------------
Total 16,434,404 6,567,842 51,115,541 19,768,407
------------ ----------- ------------ ------------
Operating income (loss) 310,851 (469,539) 1,035,243 (1,407,777)
Interest expense (278,741) (96,097) (892,895) (283,387)
Interest and other income 47,353 597 164,187 70,708
------------ ----------- ------------ ------------
Income (loss) before income tax
provision 79,463 (565,039) 306,535 (1,620,456)
Income tax provision -- (2,800) (17,535) (2,800)
------------ ----------- ------------ ------------
Net income (loss) $ 79,463 $ (567,839) $ 289,000 $ (1,623,256)
============ =========== ============ ============
Basic & Diluted net income (loss) per
share: $ 0.01 $ (0.09) $ 0.02 $ (0.26)
============ =========== ============ ============
Weighted average shares outstanding:
Basic 12,616,871 6,172,512 12,418,313 6,172,512
Diluted 13,026,042 6,172,512 13,043,435 6,172,512
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
DIEDRICH COFFEE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTY-SIX WEEKS THIRTY-NINE WEEKS
ENDED MARCH 8, 2000 ENDED APRIL 28, 1999
------------------- --------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 289,000 $(1,623,256)
Adjustments to reconcile net income (loss) to cash provided
by operating activities:
Depreciation and amortization 2,540,090 1,504,381
Changes in assets and liabilities:
Accounts receivable (732,853) (63,770)
Inventories 99,738 (153,496)
Prepaid expenses (194,719) (292,062)
Income taxes receivable -- 1,677
Other assets (55,946) (9,583)
Note Receivable - long-term -- (40,000)
Accounts payable 446,913 264,680
Accrued compensation 46,499 (244,401)
Accrued expenses and reserve for store closings
and restructuring costs (2,224,576) (37,164)
Deferred rent 3,330 36,436
------------ -----------
Net cash provided by (used in) operating activities 217,476 (656,558)
------------ -----------
Cash flows from investing activities:
Capital expenditures for property and equipment (1,795,243) (1,117,462)
Cash paid for acquisition, net (22,956,607)
Decrease in reserve for disposal of stores (595,025) 148,785
------------ -----------
Net cash used in investing activities (25,346,875) (968,677)
------------ -----------
Cash flows from financing activities:
Proceeds from issuance of common stock 25,350,799 479,236
Proceeds from the issuance of note payable, net of
fees paid 11,603,181 1,000,000
Repayment of long-term debt (7,808,357) --
Repayment of capital lease obligations (499,670) (69,270)
------------ -----------
Net cash provided by financing activities 28,645,953 1,409,966
------------ -----------
Net increase in cash 3,516,554 (215,269)
Cash at beginning of period 552,124 1,001,625
------------ -----------
Cash at end of period $ 4,068,678 $ 786,356
============ ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 610,580 $ 221,311
============ ===========
Income taxes $ 21,141 $ 2,800
============ ===========
Non-cash transactions:
Issuance of common stock to acquire Coffee People $ 8,415,000 $ --
============ ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
DIEDRICH COFFEE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 8, 2000
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The unaudited condensed consolidated financial statements of Diedrich
Coffee, Inc. (the "Company") and its subsidiaries have been prepared in
accordance with generally accepted accounting principles, the instructions to
Form 10-Q and Article 10 of Regulation S-X. Information relating to the periods
ending prior to July 7, 1999 included in this report relates to the historical
operations of Diedrich Coffee, Inc. and, except as otherwise indicated, does not
reflect the operations of Coffee People, Inc. ("Coffee People"), which the
Company acquired on July 7, 1999. These statements should be read in conjunction
with the financial statements and the notes thereto included in the Company's
Annual Report on Form 10-K for the year ended January 27, 1999 and the Company's
transition report on Form 10-Q for the transition period January 28, 1999 to
June 30, 1999.
In the opinion of management, all adjustments (consisting of normal,
recurring adjustments and accruals) considered necessary for a fair presentation
have been included. Operating results for interim periods are not necessarily
indicative of the results expected for a full year.
Change in Fiscal Year
In an effort to align its fiscal year with that of Coffee People, the
Company changed its year-end from a fiscal year ending on the Wednesday nearest
January 31 to a fiscal year ending on the Wednesday nearest June 30.
Accordingly, the condensed statements of operations and cash flows for the
twelve and thirty-six weeks ended March 8, 2000 are not necessarily comparable
to the accompanying thirteen and thirty-nine weeks ended April 28, 1999.
2. ACQUISITION OF COFFEE PEOPLE, INC.
On July 7, 1999, the Company acquired Coffee People pursuant to an
Agreement and Plan of Merger. The acquisition was affected through the merger of
CP Acquisition Corp., an indirect wholly owned subsidiary of the Company, with
and into Coffee People. As a result of the acquisition, each share of Coffee
People common stock was converted into the right to receive $2.11 in cash and
0.14 share of the Company's common stock. At the time of the acquisition, Coffee
People owned 67 retail stores and franchised 253 retail stores in 36 states and
7 foreign countries under the names Gloria Jean's, Coffee People and Coffee
Plantation.
The Company, in recording the fair value of assets acquired and
liabilities assumed, has made certain estimates. These estimates consist
primarily of (i) recording property and equipment at estimated fair value and
(ii) providing for contractual lease obligations on negative operating cash
flows on certain underperforming stores. The acquisition has been accounted for
as a purchase and the resulting estimated costs in excess of net assets acquired
in the amount of $30,658,394 are being amortized using the straight-line method
over a 40 year period. The allocation of purchase price to the fair value of
assets acquired and liabilities assumed is dependent upon certain valuations and
other studies that have not progressed to a stage where there is sufficient
information to make a definitive allocation. Although the purchase price
allocation is preliminary, management is unaware of any significant changes
necessary to arrive at a final allocation.
The assets acquired, including the costs in excess of net assets
acquired, and liabilities assumed in the acquisition of Coffee People are
summarized in the following table.
6
<PAGE> 7
DIEDRICH COFFEE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 8, 2000
(UNAUDITED)
2. ACQUISITION OF COFFEE PEOPLE, INC. (CONTINUED)
Fair value of tangible assets acquired $ 15,442,327
Costs in excess of net assets acquired 30,658,394
Liabilities assumed at fair value (14,729,114)
Common stock issued (8,415,000)
------------
Net cash paid for acquisition 22,956,607
Cash acquired in acquisition 1,761,333
------------
Cash paid for acquisition $ 24,717,940
============
In conjunction with the transaction, the Company acquired 31 corporate
owned Gloria Jean's stores, of which 8 will continue to operate as corporate
owned Gloria Jean's stores, 9 have been sold to Gloria Jean's franchisees, 5
have been closed and there are 9 which we intend to close or dispose of by June
28, 2000. Under the provisions of Emerging Issues Task Force 87-11 Allocation of
Purchase Price to Assets to Be Sold, the Company has excluded the operating
results of the 23 stores from the condensed consolidated statement of operations
for the twelve and thirty-six weeks ended March 8, 2000. Additionally, the
Company established a reserve of $1.6 million for the estimated net cash holding
costs of these stores until the estimated date of closure or disposal.
The total revenues excluded from the Company's condensed consolidated
statement of operations for the twelve and thirty-six weeks ended March 8, 2000
totaled $0.8 million and $2.8 million, respectively, and the related net losses
totaled $68,708 and $346,515, respectively. Such net losses have been charged
against the reserve for the disposal of stores.
The following table presents selected unaudited pro forma results of
operations for the Company, assuming the Coffee People acquisition had occurred
on July 1, 1998. The unaudited pro forma results of operations do not include
the operating results of the 23 Gloria Jean's Company-owned stores to be closed
or disposed of. The pro forma results of operations are not indicative of the
results of operations of the combined companies that would have occurred had the
acquisition occurred on July 1, 1998, nor are they indicative of future
operating results.
<TABLE>
<CAPTION>
THIRTEEN WEEKS THIRTY-NINE WEEKS
ENDED APRIL 28, ENDED APRIL 28,
1999 1999
--------------- -----------------
<S> <C> <C>
Total revenues $ 18,050,506 $ 56,484,800
Net income (loss) $ (258,634) $ (1,478,306)
Net income (loss) per share - basic &
diluted $ (0.02) $ (0.12)
Weighted average shares outstanding -
basic & diluted 12,602,512 12,602,512
</TABLE>
7
<PAGE> 8
DIEDRICH COFFEE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 8, 2000
(UNAUDITED)
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
MARCH 8, 2000 JUNE 30, 1999
------------- -------------
<S> <C> <C>
Green coffee (raw materials) $1,581,974 $574,745
Roasted coffee (finished goods) 724,020 157,115
Accessory and specialty items 1,361,274 258,889
Other food, beverage and supplies 1,045,697 441,500
---------- ----------
$4,712,965 $1,432,249
========== ==========
</TABLE>
4. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
MARCH 8, 2000 JUNE 30, 1999
------------- -------------
<S> <C> <C>
NUVRTY, INC
Note payable bearing interest at prime rate
plus 3 1/2%, interest payable monthly
Note was secured by the assets of the
Company. Paid in full July 7, 1999 $ -- $1,000,000
GRANDVIEW TRUST
Note payable bearing interest at prime rate
plus 3 1/2%, interest payable monthly
Note was secured by the assets of the
Company. Paid in full July 7, 1999 -- 750,000
OCEAN TRUST
Note payable bearing interest at prime rate
plus 3 1/2%, interest payable monthly
Note was secured by the assets of the
Company. Paid in full July 7, 1999 -- 750,000
BANCBOSTON, N.A
Note payable bearing interest at a rate of
9.03% as of March 8, 2000 and payable in
quarterly installments of $666,667, which
commenced on December 31, 1999. Due July 6,
2004. Note is secured by the assets of the
Company and its subsidiaries' stock 11,333,334 --
----------- ----------
Less: Current installments 2,666,664 --
----------- ----------
Long-term debt, excluding current
installments $ 8,666,670 $2,500,000
=========== ==========
</TABLE>
On July 7, 1999, the Company entered into a credit agreement with
BankBoston, N.A. that is secured by pledges of all of the Company's assets and
its subsidiaries' stock and provides for a $12 million term loan and a $3
million revolving credit facility. The Company used the proceeds of the term
loan to repay existing indebtedness and to pay expenses related to the
acquisition of Coffee People. The term loan is payable in quarterly installments
of $666,667. The Company intends to use the proceeds from the revolving credit
facility to finance additional and remodel existing company-owned retail
locations and for general corporate purposes. The Company has not presently
drawn down the revolving credit facility. Amounts outstanding under the credit
agreement bear interest, at the Company's option, at BankBoston's base rate plus
1.25% or an adjusted Eurodollar rate plus 3.0%.
8
<PAGE> 9
DIEDRICH COFFEE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 8, 2000
(UNAUDITED)
5. STOCKHOLDERS' EQUITY
On July 7, 1999, the Company completed a secondary offering of
4,930,000 shares (including an over-allotment option). All of the shares of
common stock were sold on behalf of the Company, of which 330,000 shares of
common stock were sold pursuant to the exercise of the underwriters'
over-allotment option. The net proceeds of the offering to the Company, after
deducting approximately $4.1 million in underwriters' commissions and related
expenses, were approximately $25.4 million.
On July 7, 1999, the Company issued 1,500,000 shares of the Company's
common stock to Coffee People stockholders in connection with the acquisition of
Coffee People.
6. SEGMENT AND RELATED INFORMATION
The Company has three reportable segments which include retail
operations, wholesale operations and franchise operations. The Company evaluates
performance of its operating segments based on income before income taxes.
Summarized financial information concerning the Company's reportable
segments is shown in the following table. The other total assets consist of
corporate cash, costs in excess of net assets acquired and corporate property,
plant and equipment. The other component of segment profit before tax includes
corporate general and administrative expenses, amortization expense and interest
expense.
<TABLE>
<CAPTION>
RETAIL WHOLESALE FRANCHISE
OPERATIONS OPERATIONS OPERATIONS OTHER TOTAL
------------ ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Twelve Weeks Ended March 8, 2000
Total Revenues $11,235,027 $3,442,949 $2,067,279 $ -- $16,745,255
Interest expense -- -- -- 278,741 278,741
Depreciation & amortization 312,060 37,772 -- 551,182 901,014
Segment profit (loss) before tax (67,938) 290,651 1,775,739 (1,918,989) 79,463
Total assets as of March 8, 2000 $14,473,502 $4,348,751 $1,116,482 $41,817,305 $61,756,040
<CAPTION>
RETAIL WHOLESALE FRANCHISE
OPERATIONS OPERATIONS OPERATIONS OTHER TOTAL
------------ ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Thirty-Six Weeks Ended March 8, 2000
Total Revenues $32,669,874 $14,184,301 $5,296,609 $ -- $52,150,784
Interest expense -- -- -- 892,895 892,895
Depreciation & amortization 1,295,866 105,204 -- 1,139,020 2,540,090
Segment profit (loss) before tax 178,581 2,559,325 3,636,557 (6,067,928) 306,535
Total assets as of March 8, 2000 $14,473,502 $ 4,348,751 $1,116,482 $41,817,305 $61,756,040
</TABLE>
9
<PAGE> 10
DIEDRICH COFFEE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 8, 2000
(UNAUDITED)
6. SEGMENT AND RELATED INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
RETAIL WHOLESALE FRANCHISE
OPERATIONS OPERATIONS OPERATIONS OTHER TOTAL
------------ ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Thirteen Weeks Ended April 28, 1999
Total Revenues $ 5,189,865 $ 858,408 $ 50,030 $ -- $ 6,098,303
Interest expense -- -- -- 96,097 96,097
Depreciation & amortization 379,057 35,302 -- 92,576 506,935
Segment profit (loss) before tax 378,677 (41,577) (141,725) (760,414) (565,039)
Total assets as of June 30, 1999 $ 6,276,410 $1,579,591 $ 10,015 $ 3,916,424 $11,782,440
<CAPTION>
RETAIL WHOLESALE FRANCHISE
OPERATIONS OPERATIONS OPERATIONS OTHER TOTAL
------------ ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Thirty-Nine Weeks ended April 28, 1999
Total Revenues $15,809,478 $2,301,122 $ 250,030 $ -- $18,360,630
Interest expense -- -- -- 283,387 283,387
Depreciation & amortization 1,092,743 100,408 -- 311,230 1,504,381
Segment profit (loss) before tax 1,196,559 (313,394) 83,929 (2,587,550) (1,620,456)
Total assets as of June 30, 1999 $ 6,276,410 $1,579,591 $ 10,015 $ 3,916,424 $11,782,440
</TABLE>
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
We make forward-looking statements in this document that are subject to
risks and uncertainties. These forward-looking statements include information
about possible or assumed future results of Diedrich Coffee's financial
condition, operations, plans, objectives and performance. Additionally, when we
use the words "believe," "expect," "anticipate," "estimate" or similar
expressions, we are making forward-looking statements. Many possible events or
factors could affect our future financial results and performance. This could
cause our results or performance to differ materially from those expressed in
our forward-looking statements. You should consider these risks when you review
this document, along with the following possible events or factors:
o our growth strategy may not be as successful as we expect if we are
unable to attract franchise area developers or single store
franchisees;
o our growth strategy may not be as successful if franchisees are
unable to secure attractive real estate;
o we may encounter difficulties and incur additional expenses as we
integrate Diedrich Coffee's and Coffee People's business, brands or
operating systems or retaining key personnel;
o competition within the retail specialty coffee market may intensify;
o inclement weather or adverse political changes in the countries
where we source our green coffee may significantly increase our
coffee costs; and
o adverse changes may occur in the securities or financial markets.
Foreseeable risks and uncertainties are described elsewhere in this
report and in detail under "Risk Factors and Trends Affecting Diedrich Coffee
and Its Business" in our Annual Report on Form 10-K for the fiscal year ended
April 28, 1999 and in reports that we file with the Securities and Exchange
Commission.
GENERAL
The first retail store operating under the name of Diedrich Coffee
commenced operations in 1972. Following our acquisition of Coffee People on July
7, 1999, we became the second largest specialty coffee retailer in the United
States with annual systemwide sales of more than $150 million. We currently own,
operate or franchise 362 retail locations in 38 states and 9 foreign countries.
Our primary brands are Diedrich Coffee coffeehouses and Gloria Jean's, the
nation's largest chain of mall coffee stores. We sell specialty brewed coffee
and espresso-based beverages such as cappuccinos, lattes, mochas and espressos
and various blended drinks through these company-owned and franchised retail
locations. To complement beverage sales, we also sell light food items, whole
bean coffee and accessories at our retail locations. In addition, we have a
strong wholesale division that markets its products directly to independent and
chain food service establishments, as well as to businesses for office coffee
systems through brokers and sales representatives. We also sell our products
directly to customers through mail orders and our website.
Coffee People Acquisition. On July 7, 1999, we completed our
acquisition of Coffee People pursuant to an Agreement and Plan of Merger, dated
as of March 16, 1999. The acquisition was effected by way of a merger of CP
Acquisition Corp., an indirect wholly owned subsidiary of Diedrich Coffee, with
and into Coffee People. As a result of the merger, each share of Coffee People
common stock was converted into the right to receive $2.11 in cash and 0.14
share of our common stock. The cash payment to Coffee People stockholders was
financed by a portion of the net proceeds of a public equity offering of
4,930,000 shares of our common stock at a price of $6.00 per share.
11
<PAGE> 12
On July 7, 1999, we entered into a credit agreement with BankBoston,
N.A. that is secured by pledges of all of our assets and our subsidiaries' stock
and provides for a $12 million term loan and a $3 million revolving credit
facility, payable in quarterly installments with final maturity in July 2004. We
used the proceeds of the term loan to repay existing indebtedness and to pay
expenses related to the acquisition of Coffee People and our public equity
offering. When we draw down the revolving credit facility, we intend to use the
proceeds to finance additional and remodel existing company-owned retail
locations and for general corporate purposes. Amounts outstanding under the
credit agreement bear interest, at our option, at BankBoston's base rate plus
1.25% or an adjusted Eurodollar rate plus 3.0%
Franchise Area Development Agreements. Management's franchise area
development goal is to enter into franchise area development agreements covering
most major U. S. markets. Presently, we have nine franchise area development
agreements calling for the development of up to 351 Diedrich coffeehouses, as
well as carts and kiosks, over the next 5 to 7 years. In addition, two of these
agreements contain options to develop an additional 143 coffeehouses.
Since July 1, 1999, the start of our current fiscal year, we have
entered into four area development agreements and terminated one area
development agreement. The terminated area development agreement covered the
states of Kentucky and Tennessee. On August 23, 1999, we announced a franchise
area development agreement which calls for the development of 50 coffeehouses in
Wyoming, Montana and Colorado. On October 19, 1999 we announced a franchise area
development agreement which provides for the development of 50 coffeehouses in
various counties in Southern California including Kern, San Luis Obispo, Ventura
and Santa Barbara as well as portions of Los Angeles, San Bernardino, Riverside
and Orange. On January 20, 2000, we announced a franchise area development
agreement which calls for the development of 50 coffeehouses in Connecticut,
Western Massachusetts and upstate New York. On March 20, 2000, we announced a
franchise area development agreement which call for the development of 17
coffeehouses in Nevada. We are currently in various stages of discussion and
negotiations with several additional potential area developers.
On November 2, 1999, we announced that our Gloria Jean's Coffees
Division signed a franchise area development agreement which provides for the
development of 30 Gloria Jean's brand stores in South East Asian countries
including Malaysia, Singapore and Brunei.
Year 2000. The year 2000 problem was the result of computer programs
being written using two digits rather than four to define the applicable year.
Miscalculations or system failures could have occurred to any of our programs on
or after January 1, 2000 that had time-sensitive software if they had recognized
dates using "00" as the year 1900 rather than the year 2000. Based on our review
of our business since January 1, 2000, we have not experienced any material
effects of the year 2000 problem. Although we have not been informed of any
material risks associated with the year 2000 problem from third parties, there
can be no assurance that they may not impact our business in the future. We are
continuously monitoring our business applications and have constant
communication with significant suppliers and key business partners so that we
may resolve any year 2000 problems that arise in the future.
Seasonality and Quarterly Results. Our business is subject to seasonal
fluctuations as well as economic trends that affect retailers in general.
Historically, our net revenues have not been realized proportionately in each
quarter, with net revenues being the highest during the December holiday season.
Hot weather tends to reduce revenues. Quarterly results are affected by the
timing of the opening of new stores, which may not occur as anticipated due to
events outside our control. As a result of these factors, and of the other
contingencies and risk factors described elsewhere in this report, our Annual
Report on Form 10-K and our Transition Report on Form 10-Q, the financial
results for any individual quarter may not be indicative of the results that may
be achieved in a full fiscal year.
12
<PAGE> 13
RESULTS OF OPERATIONS
Coffee People Acquisition. On July 7, 1999, we acquired Coffee People
in a transaction that was accounted for using the purchase method of accounting;
and accordingly, the assets acquired and liabilities assumed were recorded as of
their fair values on that date. The results of operations for the periods ended
March 8, 2000 and April 28, 1999 differ significantly because of the acquisition
of Coffee People in July 1999. The resulting estimated costs in excess of net
assets of the business acquired in the amount of $30,658,394 are being amortized
using the straight-line method over a 40 year period.
Change in Fiscal Year. In an effort to align our fiscal year with that
of Coffee People which we acquired on July 7, 1999, we changed our year end from
a fiscal year ending on the Wednesday nearest January 31 to a fiscal year ending
on the Wednesday nearest June 30. Accordingly, the condensed consolidated
financial statements for the twelve and thirty-six weeks ended March 8, 2000 are
not necessarily comparable to the accompanying condensed consolidated financial
statements for the thirteen and thirty-nine weeks ended April 28, 1999.
Twelve and Thirty-Six Weeks Ended March 8, 2000 Compared with the Thirteen and
Thirty-Nine Weeks Ended April 28, 1999
Total revenues. Total revenues for the twelve weeks ended March 8, 2000
increased 175% to $16,745,000 from $6,098,000 for the thirteen weeks ended April
28, 1999. Total revenues for the thirty-six weeks ended March 8, 2000 increased
184% to $52,151,000 from $18,361,000 for the thirty-nine weeks ended April 28,
1999. These increases were principally due to the acquisition of Coffee People
and also due to an increase in comparable store sales for the Diedrich Coffee
coffeehouses and the Coffee People coffeehouses. During this most recent
quarter, we derived 67.1% of total revenues from our retail coffeehouse
operations. In addition, wholesale and mail order revenue accounted for 20.6 %
of total revenues and franchise revenues counted for 12.3% of total revenues.
Retail revenues for the twelve weeks ended March 8, 2000 increased 116%
to $11,235,000 from $5,190,000 for the thirteen weeks ended April 28, 1999. This
increase was primarily a result of the acquisition of Coffee People and also due
to an increase in comparable store sales for the Diedrich Coffee coffeehouses
and the Coffee People coffeehouses. As of March 8, 2000, we operated 100 retail
locations; whereas on April 28, 1999, we operated 40 retail locations. The
percentage increase (decrease) in system-wide comparable store sales was 4.7%
for the Diedrich Coffee coffeehouses, (7.1)% for the Gloria Jean's coffee
stores, 2.1% for the Coffee People concept, and (6.4)% for the Coffee Plantation
concept during the twelve weeks ended March 8, 2000.
Retail revenues for the thirty-six weeks ended March 8, 2000 increased
107% to $32,670,000 from $15,809,000 for the thirty-nine weeks ended April 28,
1999, principally due to the acquisition of Coffee People and also due to an
increase in comparable store sales for the Diedrich Coffee coffeehouses, the
Gloria Jean's coffee stores and the Coffee People coffeehouses. The percentage
increase (decrease) in system-wide comparable store sales was 5.4% for the
Diedrich Coffee coffeehouses, 2.4% for the Gloria Jean's coffee stores, 0.8% for
the Coffee People concept, and (2.4)% for the Coffee Plantation concept during
the thirty-six weeks ended March 8, 2000.
Wholesale and other revenues increased 301% to $3,443,000 in the twelve
weeks ended March 8, 2000 from $858,000 for the thirteen weeks ended April 28,
1999. Wholesale and other revenues increased 516% to $14,184,000 in the
thirty-six weeks ended March 8, 2000 from $2,301,000 for the thirty-nine weeks
ended April 28, 1999. These increases reflect the addition of the Gloria Jean's
franchisee operations, which purchase roasted coffee from Diedrich Coffee.
Franchise revenue increased to $2,067,000 for the twelve weeks ended
March 8, 2000, from $50,000 for the thirteen weeks ended April 28, 1999.
Franchise revenue increased to $5,297,000 for the thirty-six weeks ended March
8, 2000 from $250,000 for the thirty-nine weeks ended April 28, 1999. Franchise
revenue consists of initial franchise fees, franchisee renewal fees, area
development fees and royalties received on sales made at each franchised
location. As of March 8, 2000, we had 2 franchised neighborhood coffeehouses and
260 franchised mall coffee stores. The increase in franchise revenue is
principally due to the franchised coffee stores obtained in our acquisition of
Coffee People.
13
<PAGE> 14
Cost of Sales and Related Occupancy Costs. Cost of roasted coffee,
dairy, food, paper and bar supplies, accessories and clothing (cost of sales)
and rent (related occupancy costs) for the twelve weeks ended March 8, 2000
increased to $7,890,000 from $2,758,000 for the thirteen weeks ended April 28,
1999. As a percentage of total revenue, cost of sales and related occupancy
costs increased to 47.1% in the twelve weeks ended March 8, 2000 from 45.2% for
the thirteen weeks ended April 28, 1999. Cost of sales and related occupancy
costs for the thirty-six weeks ended March 8, 2000 increased to $25,487,000 from
$8,318,000 for the thirty-nine weeks ended April 28, 1999. As a percentage of
total revenue, cost of sales and related occupancy costs increased to 48.9% in
the thirty-six weeks ended March 8, 2000 from 45.3% for the thirty-nine weeks
ended April 28, 1999. These increases are primarily related to the smaller
margins received on coffee and products sold to franchisees than those sold to
wholesale accounts.
Store Operating Expenses. Store operating expenses increased to
$5,349,000 for the twelve weeks ended March 8, 2000 from $2,288,000 for the
thirteen weeks ended April 28, 1999. As a percentage of retail and franchise
revenues, store operating expenses decreased to 40.2% in the twelve weeks ended
March 8, 2000 from 43.7% in the thirteen weeks ended April 28, 1999. For the
thirty-six weeks ended March 8, 2000, store operating expenses increased to
$15,971,000 from $6,667,000 for the thirty-nine weeks ended April 28, 1999. As a
percentage of retail and franchise revenues, store operating expenses increased
to 42.1% in the thirty-six weeks ended March 8, 2000 from 41.5% in the
thirty-nine weeks ended April 28, 1999. This increase can be attributed to an
increase in labor expenses due to additional staff training at the store level
as well as the addition of the Coffee People stores located in Oregon. Oregon
has a higher minimum wage compared to states in which we were operating during
the prior year.
Other Operating Expenses. Other operating expenses (those associated
with wholesale and other revenues) increased to $375,000 for the twelve weeks
ended March 8, 2000 from $158,000 for the thirteen weeks ended April 28, 1999.
These expenses, as a percentage of the revenues from the wholesale division,
decreased to 10.9% from 18.3%. For the thirty-six weeks ended March 8, 2000,
other operating expenses, as a percentage of the revenues from the wholesale
division, decreased to 7.4% from 21.6% for the thirty-nine weeks ended April 28,
1999. These decreases can be primarily attributed to a larger revenue base with
the addition of the Gloria Jean's franchisees.
Depreciation and Amortization. Depreciation and amortization increased
to $901,000 for the twelve weeks ended March 8, 2000 from $507,000 for the
thirteen weeks ended April 28, 1999. As a percentage of total revenue,
depreciation and amortization decreased to 5.4% in comparison to 8.3% for the
thirteen weeks ended April 28, 1999. Depreciation and amortization increased to
$2,540,000 for the thirty-six weeks ended March 8, 2000 from $1,504,000 for the
thirty-nine weeks ended April 28, 1999. As a percentage of total revenue,
depreciation and amortization decreased to 4.9% for the thirty-six weeks ended
March 8, 2000 in comparison to 8.2% for the thirty-nine weeks ended April 28,
1999.
General and Administrative Expenses. General and administrative
expenses increased to $1,919,000 for the twelve weeks ended March 8, 2000 from
$857,000 for the thirteen weeks ended April 28, 1999. As a percentage of total
revenue, general and administrative expenses decreased to 11.5% from 14.1% in
the thirteen weeks ended April 28, 1999. As a percentage of net revenues,
general and administrative expenses decreased to 11.6% for the thirty-six weeks
ended March 8, 2000 from 15.2% for the thirty-nine weeks ended April 28, 1999.
These decreases in general and administrative expenses as a percentage of total
revenue were primarily a result of cost savings incurred with the acquisition
due to the result of the elimination of management personnel who were not
essential to our growth strategy.
Interest Expense. Interest expense increased to $279,000 for the twelve
weeks ended March 8, 2000 from $96,000 for the thirteen weeks ended April 28,
1999. For the thirty-six weeks ended March 8, 2000, interest expense increased
to $893,000 from $283,000 for the thirty-nine weeks ended April 28, 1999. These
increases are a result of the $12 million term loan, which funded on July 7,
1999.
LIQUIDITY AND CAPITAL RESOURCES
We have funded our capital requirements in recent years principally
through public and private placements of our common stock and long-term debt. We
had working capital deficit of $832,349 as of March 8, 2000 compared to working
capital deficit of $2,439,000 as of June 30, 1999. Cash provided by (used in)
operating activities for the thirty-six weeks ended March 8, 2000 totaled
$217,476 as compared to ($656,558) for the thirty-nine weeks ended April 28,
1999.
14
<PAGE> 15
Net cash used in investing activities for the thirty-six weeks ended
March 8, 2000 totaled $25,346,875 which was primarily used for the acquisition
of Coffee People. Net cash provided by financing activities for the thirty-six
weeks ended March 8, 2000 totaled $28,645,953 which consisted of proceeds from
the issuance of common stock and long-term debt, reduced by the $8,308,000
repayment of long-term debt and capital lease obligations.
Our management has continued to focus on our long-term growth strategy
which has resulted in certain operating expenses. We recently added several key
executives to our management team to help us achieve these long-term goals. As a
result, we incurred additional operating expenses in the twelve weeks ended
March 8, 2000, and it is not likely that we will be profitable for fiscal year
2000. We plan to continue our review of every aspect of our consolidated
operations to determine where changes, improvements and investments need to be
made to build a stronger company.
As of March 8, 2000, we had $11.3 million of long-term debt, including
current installments, that consisted of a term loan with BankBoston, N.A. that
is secured by pledges of all of our assets and our subsidiaries' stock and was
bearing interest at a rate of 9.03%. The credit agreement with BankBoston, N.A.
also provides for a $3 million revolving credit facility, which we have not
presently drawn down. The term loan and the revolving credit facility both
require quarterly payments and have a final maturity in July 2004. The Company
used the proceeds of the term loan to repay existing indebtedness and to pay
expenses related to the acquisition of Coffee People. The Company intends to use
the remaining proceeds from the revolving credit facility to finance additional
and remodel existing company-owned retail locations and for general corporate
purposes. Amounts outstanding under the credit agreement bear interest, at the
Company's option, at BankBoston's base rate plus 1.25% or an adjusted Eurodollar
rate plus 3.00%. Diedrich Coffee may change the interest rate from the
BankBoston base rate to the adjusted Eurodollar rate at any time with 3 day's
notice and from the adjusted Eurodollar rate to the BankBoston base rate at the
end of each calendar quarter.
We believe that the credit facility described above will be sufficient
to satisfy our working capital needs at the anticipated operating levels for the
next twelve months.
15
<PAGE> 16
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Derivative Instruments. We did not invest in market risk sensitive
instruments in fiscal 1999, the transition period ended June 30, 1999 nor in the
thirty-six weeks ended March 8, 2000. From time to time, however, we enter into
agreements to purchase green coffee in the future at prices to be determined
within two to twelve months of the time of actual purchase. At March 8, 2000
these commitments totaled $3,084,000. These agreements are tied to specific
market prices (defined by both the origin of the coffee and the month of
delivery) but we have significant flexibility in selecting the date of the
market price to be used in each contract. We do not use commodity based
financial instruments to hedge coffee or any other commodity, as we believe
there will continue to be a high probability of maintaining a strong correlation
between increases in green coffee prices and the final selling prices of our
products.
We have not used derivative financial instruments for any purpose,
including hedging or mitigating interest rate risk.
New Accounting Pronouncements. In June 1998, the Financial Accounting
Standards Board issues Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" (SFAS 133). SFAS
133 establishes accounting and reporting standards for derivative instruments
embedded in other contracts and hedging activities. SFAS 133 is effective for
all fiscal quarters of fiscal years beginning after June 15, 2000. Application
of SFAS 133 is not expected to have a material impact on our business, results
of operations or liquidity.
Market Risk. Our market risk exposure with regard to financial
instruments outstanding as of March 8, 2000 was to changes in an adjusted
Eurodollar rate. We borrowed $12 million on July 7, 1999 in connection with our
acquisition of Coffee People, which bears interest at our option, at
BankBoston's base rate plus 1.25%, or an adjusted Eurodollar rate plus 3.0%.
Diedrich Coffee may convert the interest rate from the BankBoston base rate to
the adjusted Eurodollar rate at anytime with 3 day's notice. We may convert the
interest rate from the adjusted Eurodollar rate to the BankBoston base rate at
the end of each calendar quarter. The $12 million outstanding under the term
loan was bearing interest at the BankBoston base rate plus 1.25% from July 7,
1999 to July 10, 1999 at which time the interest was converted to the adjusted
Eurodollar rate plus 3.0%. At March 8, 2000, the adjusted Eurodollar rate was
6.03%. At March 8, 2000, a hypothetical 100 basis point increase in the rate
would result in additional interest expense of $113,333 on an annualized basis.
The additional interest expense is based upon the outstanding balance of our
long-term debt, and assumes no change in the volume or composition of debt at
March 8, 2000. The credit agreement also provides for a $3 million revolving
line of credit which also bears interest at our option, at BankBoston's base
rate plus 1.25%, or an adjusted Eurodollar rate plus 3.00%. We have not
presently drawn down this revolving line of credit.
PART II- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the ordinary course of our business, we may become involved in legal
proceedings from time to time. During the thirty-six week period ending March 8,
2000, no material developments occurred in any material pending legal
proceedings. A discussion of our material pending legal proceedings appears in
our registration statement on Form S-1 (Reg. No. 333-78083) under the heading
"Business - Legal Proceedings."
ITEM 5. OTHER INFORMATION
Minimum Advance Notice of Stockholder Proposals. Diedrich Coffee
stockholders are advised that we must be notified by April 25, 2000, which is 45
days prior to the month and day of mailing last year's proxy statement, of any
proposal or solicitation that any stockholder intends to present at the next
annual meeting of stockholders and which the stockholder has not sought to have
included in our proxy statement for the meeting in accordance with Rule 14a-8
under the Securities Exchange Act of 1934. If a proponent fails to notify us
before the required deadline, management proxies will be allowed to use their
discretionary voting authority when the proposal is raised at the annual
meeting, without any discussion of the matter in the proxy statement.
16
<PAGE> 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
Set forth below is a list of the exhibits included as part of this
Quarterly Report.
EXHIBIT NO. DESCRIPTION
----------- -----------
2.1 Form of Agreement and Plan of merger by and between
Diedrich Coffee, a California corporation, and
Diedrich Coffee, Inc., a Delaware corporation (1)
2.2 Agreement and Plan of Merger dated as of March 16,
1999, by and among Diedrich Coffee, CP Acquisition
Corp., a wholly owned subsidiary of Diedrich Coffee,
and Coffee People (2)
3.1 Certificate of Incorporation of the Company (1)
3.2 Bylaws of the Company (1)
4.1 Purchase Agreement for Series A Preferred Stock dated
as of December 11, 1992 by and among Diedrich Coffee,
Martin R. Diedrich, Donald M. Holly, SNV Enterprises
and D.C.H., L.P. (1)
4.2 Purchase Agreement for Series B Preferred Stock dated
as of June 29, 1995 by and among Diedrich Coffee,
Martin R. Diedrich, Steven A. Lupinacci, Redwood
Enterprises VII, L.P. and Diedrich Partners I, L.P. (1)
4.3 Specimen Stock Certificate (1)
4.4 Form of conversation Agreement in the connection with
the conversion of Series A and Series B Preferred
Stock into Common Stock (1)
4.5 Form of Lock-up Letter Agreement among The Second
Cup, Ltd. and Diedrich Coffee, Inc. (3)
4.6 Voting Agreement and Irrevocable Proxy dated as of
March 16, 1999 by and among Diedrich Coffee, Inc.,
D.C.H., L.P., Peter Churm, Martin R. Diedrich,
Lawrence Goelman, Paul C. Heeschen, John E. Martin,
Timothy J. Ryan, and Second Cup USA Holdings Ltd. (3)
10.1 Form of Indemnification Agreement (1)
10.2 Amended and Restated Diedrich Coffee 1996 Stock
Incentive Plan (4)
10.3 Diedrich Coffee 1996 Non-Employee Directors Stock
Option Plan (1)
10.4 Agreement of Sale dated as of February 23, 1996 by
and among Diedrich Coffee (as purchaser) and Brothers
Coffee Bars, Inc. and Brothers Gourmet Coffees, Inc.
(as sellers) (1)
10.5 Separation agreement dated May 13, 1997 between
Steven A. Lupinacci and Diedrich Coffee, Inc. (5)
10.6 Letter agreement by and between the Company and John
E. Martin appointing Mr. Martin Chairman of the
Board, dated as of November 17, 1997 (6)
10.7 Stock Option Plan and Agreement by and between the
company and John E. Martin granting Mr. Martin the
option to purchase up to 850,000 shares of the Common
Stock of the Company, dated as of November 17, 1997 (6)
17
<PAGE> 18
10.8 Common Stock Purchase Agreement by and between the
company and John E. Martin under which Mr. Martin
agrees to purchase 333,333 shares of the Common Stock
of the Company, dated as of November 17, 1997 (6)
10.9 Employment Agreement by and between the Company and
Timothy J. Ryan retaining Mr. Ryan as Chief Executive
Officer, dated as of November 17, 1997 (6)
10.10 Stock Option Plan and Agreement by and between the
company and Timothy J. Ryan granting Mr. Ryan up to
600,000 shares of the Common Stock of the Company,
dated as of November 17, 1997 (6)
10.11 Common Stock Purchase Agreement by and between the
Company and Timothy J. Ryan under which Mr. Ryan
agrees to purchase 16,667 shares of the Common Stock
of the Company, dated as of November 17, 1997 (6)
10.12 Form of Promissory Note made in favor of Nuvrty,
Inc., the Ocean Trust and the Grandview Trust (7)
10.13 Form of Term Loan Agreement made in favor of Nuvrty,
Inc., the Ocean Trust and the Grandview Trust (7)
10.14 Form of Security Agreement made in favor of Nuvrty,
Inc., the Ocean Trust and the Grandview Trust (7)
10.15 Form of Warrant Agreement made in favor of Nuvrty,
Inc., the Ocean Trust and the Grandview Trust (7)
10.16 Form of Intercreditor Agreement made in favor of Nuvrty,
Inc., the Ocean Trust and the Grandview Trust (7)
10.17 Form of Common Stock and Option Purchase Agreement
with Franchise Mortgage Acceptance Company dated as
of April 3, 1998 (8)
10.18 Separation and Release Agreement dated January 28,
1998 with Kerry W. Coin (8)
10.19 Employment Agreement with Ann Wride dated April 8,
1998 (9)
10.20 Employment Agreement with Catherine Saar dated June
11, 1998 (10)
10.21 Employment Agreement with Dolf Berle dated April 8,
1998 (10)
10.22 Form of Franchise Agreement (11)
10.23 Form of Area Development Agreement (11)
10.24 Employment Agreement with Martin R. Diedrich dated
June 29, 1998 (3)
10.25 Credit Agreement, dated, as of July 7, 1999, by and
among BankBoston, N.A., Diedrich Coffee and its
subsidiaries (12)
10.26 Security Agreement, dated, as of July 7, 1999, by and
among BankBoston, N.A., Diedrich Coffee and its
subsidiaries (12)
10.27 Securities Pledge Agreement, dated, as of July 7,
1999, by and among BankBoston, N.A., Diedrich Coffee
and its subsidiaries (12)
18
<PAGE> 19
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.28 Trademark Security Agreement, dated, as of July 7, 1999, by and
among BankBoston, N.A., Diedrich Coffee and its subsidiaries (12)
10.29 Form of Term Note made in favor of BankBoston, N.A. (12)
10.30 Form of Revolving Note made in favor of BankBoston, N.A. (12)
11 Statement Re: Computation of Per Share Earnings*
27 Financial Data Schedule*
- ------------------
* Filed with this Form 10-Q
(1) Previously filed as an exhibit to Diedrich Coffee's Registration Statement
on Form S-1 (No. 333-08633), as amended, as declared effective by the
Securities and Exchange Commission on September 11, 1996.
(2) Previously filed as Appendix A to Diedrich Coffee's Registration Statement
on Form S-4, filed with the Securities and Exchange Commission on April
23, 1999.
(3) Previously filed as an exhibit to Diedrich Coffee's Registration Statement
on Form S-4, filed with the Securities and Exchange Commission on April
23, 1999.
(4) Previously filed as an exhibit to Diedrich Coffee's Quarterly Report on
Form 10-Q for the period ended September 22, 1999, filed with the
Securities and Exchange Commission on November 5, 1999.
(5) Previously filed as an exhibit to Diedrich Coffee's Quarterly Report on
Form 10-Q for the period ended April 30, 1997, filed with the Securities
and Exchange Commission on June 13, 1997.
(6) Previously filed as an exhibit to Diedrich Coffee's Current Report on Form
8-K, filed with the Securities and Exchange Commission on November 25,
1997.
(7) Previously filed as an exhibit to Diedrich Coffee's Quarterly Report on
Form 10-Q for the period ended October 29, 1997, filed with the Securities
and Exchange Commission on December 11, 1997.
(8) Previously filed as an exhibit to Diedrich Coffee's annual report on Form
10-K for the fiscal year ended January 28, 1998.
(9) Previously filed as an exhibit to Diedrich Coffee's Quarterly Report on
Form 10-Q for the period ended April 28, 1999, filed with the Securities
and Exchange Commission on June 11, 1998.
(10) Previously filed as an exhibit to Diedrich Coffee's Quarterly Report on
Form 10-Q for the period ended July 29, 1998, filed with the Securities
and Exchange Commission on September 10, 1998.
(11) Previously filed as an exhibit to Diedrich Coffee's Quarterly Report on
Form 10-Q for the period ended April 28, 1999, filed with the Securities
and Exchange Commission on December 11, 1998.
(12) Incorporated by reference to Diedrich Coffee's Transition Report on Form
10-Q for the period from January 28, 1999 to June 30, 1999, filed with the
Securities and Exchange Commission on August 16, 1999.
(b) REPORTS ON FORM 8-K
None.
19
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: April 21, 2000 DIEDRICH COFFEE, INC.
/s/ Timothy J. Ryan
--------------------------------------------
Timothy J. Ryan,
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Matthew C. McGuinness
--------------------------------------------
Matthew C. McGuinness
Senior Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
20
<PAGE> 21
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
2.1 Form of Agreement and Plan of merger by and between Diedrich
Coffee, a California corporation, and Diedrich Coffee, Inc., a
Delaware corporation (1)
2.2 Agreement and Plan of Merger dated as of March 16, 1999, by
and among Diedrich Coffee, CP Acquisition Corp., a wholly
owned subsidiary of Diedrich Coffee, and Coffee People (2)
3.1 Certificate of Incorporation of the Company (1)
3.2 Bylaws of the Company (1)
4.1 Purchase Agreement for Series A Preferred Stock dated as of
December 11, 1992 by and among Diedrich Coffee, Martin R.
Diedrich, Donald M. Holly, SNV Enterprises and D.C.H., L.P. (1)
4.2 Purchase Agreement for Series B Preferred Stock dated as of
June 29, 1995 by and among Diedrich Coffee, Martin R.
Diedrich, Steven A. Lupinacci, Redwood Enterprises VII, L.P.
and Diedrich Partners I, L.P. (1)
4.3 Specimen Stock Certificate (1)
4.4 Form of conversation Agreement in the connection with the
conversion of Series A and Series B Preferred Stock into
Common Stock (1)
4.5 Form of Lock-up Letter Agreement among The Second Cup, Ltd.
and Diedrich Coffee, Inc. (3)
4.6 Voting Agreement and Irrevocable Proxy dated as of March 16,
1999 by and among Diedrich Coffee, Inc., D.C.H., L.P., Peter
Churm, Martin R. Diedrich, Lawrence Goelman, Paul C. Heeschen,
John E. Martin, Timothy J. Ryan, and Second Cup USA Holdings
Ltd. (3)
10.1 Form of Indemnification Agreement (1)
10.2 Amended and Restated Diedrich Coffee 1996 Stock Incentive Plan (4)
10.3 Diedrich Coffee 1996 Non-Employee Directors Stock Option Plan (1)
10.4 Agreement of Sale dated as of February 23, 1996 by and among
Diedrich Coffee (as purchaser) and Brothers Coffee Bars, Inc.
and Brothers Gourmet Coffees, Inc. (as sellers) (1)
10.5 Separation agreement dated May 13, 1997 between Steven A.
Lupinacci and Diedrich Coffee, Inc. (5)
10.6 Letter agreement by and between the Company and John E. Martin
appointing Mr. Martin Chairman of the Board, dated as of
November 17, 1997 (6)
10.7 Stock Option Plan and Agreement by and between the company and
John E. Martin granting Mr. Martin the option to purchase up
to 850,000 shares of the Common Stock of the Company, dated as
of November 17, 1997 (6)
<PAGE> 22
EXHIBIT INDEX (Continued)
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.8 Common Stock Purchase Agreement by and between the company and
John E. Martin under which Mr. Martin agrees to purchase
333,333 shares of the Common Stock of the Company, dated as of
November 17, 1997 (6)
10.9 Employment Agreement by and between the Company and Timothy J.
Ryan retaining Mr. Ryan as Chief Executive Officer, dated as
of November 17, 1997 (6)
10.10 Stock Option Plan and Agreement by and between the company and
Timothy J. Ryan granting Mr. Ryan up to 600,000 shares of the
Common Stock of the Company, dated as of November 17, 1997 (6)
10.11 Common Stock Purchase Agreement by and between the Company and
Timothy J. Ryan under which Mr. Ryan agrees to purchase 16,667
shares of the Common Stock of the Company, dated as of
November 17, 1997 (6)
10.12 Form of Promissory Note made in favor of Nuvrty, Inc., the
Ocean Trust and the Grandview Trust (7)
10.13 Form of Term Loan Agreement made in favor of Nuvrty, Inc., the
Ocean Trust and the Grandview Trust (7)
10.14 Form of Security Agreement made in favor of Nuvrty, Inc., the
Ocean Trust and the Grandview Trust (7)
10.15 Form of Warrant Agreement made in favor of Nuvrty, Inc., the
Ocean Trust and the Grandview Trust (7)
10.16 Form of Intercreditor Agreement made in favor of Nuvrty, Inc.,
the Ocean Trust and the Grandview Trust (7)
10.17 Form of Common Stock and Option Purchase Agreement with Franchise
Mortgage Acceptance Company dated as of April 3, 1998 (8)
10.18 Separation and Release Agreement dated January 28, 1998 with
Kerry W. Coin (8)
10.19 Employment Agreement with Ann Wride dated April 8, 1998 (9)
10.20 Employment Agreement with Catherine Saar dated June 11, 1998 (10)
10.21 Employment Agreement with Dolf Berle dated April 8, 1998 (10)
10.22 Form of Franchise Agreement (11)
10.23 Form of Area Development Agreement (11)
10.24 Employment Agreement with Martin R. Diedrich dated June 29, 1998(3)
10.25 Credit Agreement, dated, as of July 7, 1999, by and among
BankBoston, N.A., Diedrich Coffee and its subsidiaries (12)
10.26 Security Agreement, dated, as of July 7, 1999, by and among
BankBoston, N.A., Diedrich Coffee and its subsidiaries (12)
10.27 Securities Pledge Agreement, dated, as of July 7, 1999, by and
among BankBoston, N.A., Diedrich Coffee and its subsidiaries (12)
<PAGE> 23
EXHIBIT INDEX (Continued)
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.28 Trademark Security Agreement, dated, as of July 7, 1999, by
and among BankBoston, N.A., Diedrich Coffee and its
subsidiaries (12)
10.29 Form of Term Note made in favor of BankBoston, N.A. (12)
10.30 Form of Revolving Note made in favor of BankBoston, N.A. (12)
11 Statement Re: Computation of Per Share Earnings*
27 Financial Data Schedule*
- ----------------------
* Filed with this Form 10-Q
(1) Previously filed as an exhibit to Diedrich Coffee's Registration
Statement on Form S-1 (No. 333-08633), as amended, as declared effective
by the Securities and Exchange Commission on September 11, 1996.
(2) Previously filed as Appendix A to Diedrich Coffee's Registration Statement
on Form S-4, filed with the Securities and Exchange Commission on April
23, 1999.
(3) Previously filed as an exhibit to Diedrich Coffee's Registration Statement
on Form S-4, filed with the Securities and Exchange Commission on April
23, 1999.
(4) Previously filed as an exhibit to Diedrich Coffee's Quarterly Report on
Form 10-Q for the period ended September 22, 1999, filed with the
Securities and Exchange Commission on November 5, 1999.
(5) Previously filed as an exhibit to Diedrich Coffee's Quarterly Report on
Form 10-Q for the period ended April 30, 1997, filed with the Securities
and Exchange Commission on June 13, 1997.
(6) Previously filed as an exhibit to Diedrich Coffee's Current Report on Form
8-K, filed with the Securities and Exchange Commission on November 25,
1997.
(7) Previously filed as an exhibit to Diedrich Coffee's Quarterly Report on
Form 10-Q for the period ended October 29, 1997, filed with the Securities
and Exchange Commission on December 11, 1997.
(8) Previously filed as an exhibit to Diedrich Coffee's annual report on Form
10-K for the fiscal year ended January 28, 1998.
(9) Previously filed as an exhibit to Diedrich Coffee's Quarterly Report on
Form 10-Q for the period ended April 28, 1999, filed with the Securities
and Exchange Commission on June 11, 1998.
(10) Previously filed as an exhibit to Diedrich Coffee's Quarterly Report on
Form 10-Q for the period ended July 29, 1998, filed with the Securities
and Exchange Commission on September 10, 1998.
(11) Previously filed as an exhibit to Diedrich Coffee's Quarterly Report on
Form 10-Q for the period ended April 28, 1999, filed with the Securities
and Exchange Commission on December 11, 1998.
(12) Incorporated by reference to Diedrich Coffee's Transition Report on Form
10-Q for the period from January 28, 1999 to June 30, 1999, filed with the
Securities and Exchange Commission on August 16, 1999.
<PAGE> 1
EXHIBIT 11
DIEDRICH COFFEE, INC.
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
TWELVE WEEKS THIRTEEN WEEKS THIRTY-SIX WEEKS THIRTY-NINE WEEKS
ENDED MARCH 8, 2000 ENDED APRIL 28, 1999 ENDED MARCH 8, 2000 ENDED APRIL 28, 1999
------------------- -------------------- ------------------- --------------------
<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE
Net income (loss) $ 79,463 $ (567,839) $ 289,000 $(1,623,256)
=========== =========== =========== ===========
Weighted average number of shares
outstanding during the period 12,616,871 6,172,512 12,418,313 6,172,512
=========== =========== =========== ===========
Basic net income (loss) per share: $ 0.01 $ (0.09) $ 0.02 $ (0.26)
=========== =========== =========== ===========
DILUTED EARNINGS PER SHARE
Diluted net income (loss) $ 79,463 $ (567,839) $ 289,000 $(1,623,256)
=========== =========== =========== ===========
Weighted average number of shares
outstanding during the period 12,616,871 6,172,512 12,418,313 6,172,512
Incremental shares attributable
to the exercise of outstanding options 409,171 -- 625,122 --
----------- ----------- ----------- -----------
Total Shares 13,026,042 6,172,512 13,043,435 6,172,512
=========== =========== =========== ===========
Diluted net income (loss) per share: $ 0.01 $ (0.09) $ 0.02 $ (0.26)
=========== =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DIEDRICH
COFFEE, INC. UNAUDITED FINANCIAL STATEMENTS FOR THE THIRTY-SIX WEEKS ENDED AND
AS OF MARCH 8, 2000 CONTAINED IN THE COMPANY'S 3RD QUARTER 2000 10-Q AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FIANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-28-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> MAR-08-2000
<CASH> 4,068,678
<SECURITIES> 0
<RECEIVABLES> 3,247,269
<ALLOWANCES> 0
<INVENTORY> 4,712,965
<CURRENT-ASSETS> 12,988,016
<PP&E> 31,944,878
<DEPRECIATION> 15,378,039
<TOTAL-ASSETS> 61,756,040
<CURRENT-LIABILITIES> 13,820,365
<BONDS> 0
0
0
<COMMON> 126,168
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 61,756,040
<SALES> 52,150,784
<TOTAL-REVENUES> 52,150,784
<CGS> 25,487,273
<TOTAL-COSTS> 25,487,273
<OTHER-EXPENSES> 25,628,268
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 892,895
<INCOME-PRETAX> 306,535
<INCOME-TAX> 17,535
<INCOME-CONTINUING> 289,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 289,000
<EPS-BASIC> .02
<EPS-DILUTED> .02
</TABLE>
